WASHINGTON, D.C. — In a significant move, the U.S. Department of Labor (DOL) unveiled a new rule effective today, shaking up the criteria for determining whether workers should be classified as employees or independent contractors under the Fair Labor Standards Act (FLSA)​.

This is particularly impactful considering the backdrop of the FLSA, enacted in 1938 to secure worker rights such as minimum wage, overtime pay, and more, which do not extend to independent contractors​.

Nationwide Rule Emulates Existing State Legislation

The DOL’s new rule reflects principles similar to California’s AB5, emphasizing accurate worker classification and ensuring protections. AB5, with its “ABC” test, has redefined employment in California, pushing for a wider application of employee benefits and rights. Proponents of the legislation hailed not only the direct worker benefits but also that the law addresses state concern over lost tax revenue, estimated at up to $7 billion annually due to misclassification.

Like with AB5, labor advocates and gig workers who support the law for offering greater employment rights and protections are happy to see the nationwide rule go into effect. Gig economy companies and a diverse array of independent contractors who once opposed AB5, however, are once again arguing that the rule restricts flexibility that could negatively impact their earnings and operational model.

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The updated DOL rule introduces a “six-factor test” to guide the classification process. This includes examining the nature and degree of control over the work, the worker’s opportunity for profit or loss based on initiative or investment, and the amount of skill required for the job, among others. Notably, the worker’s skill and initiative play a crucial role; specialized skills coupled with business-like initiative could tilt the scale towards independent contractor status​.

The implications of this rule change are significant for both workers and businesses. For workers, it potentially means more protections and benefits due under employment law.

Businesses, on the other hand, face the task of reevaluating their workforce classifications to comply with the new guidelines. Misclassifications can lead to back wages, penalties, and other liabilities. The DOL emphasizes an equal weighting across the six factors, urging companies to review and, if necessary, adjust their practices to ensure they meet this more stringent standard​.

A Muted Response

Large gig companies such as Uber and Lyft, have, so far, largely downplayed the effects of the rule go-live.

Uber’s response to the DOL’s new worker classification rule indicates that the company doesn’t see the rule significantly altering its operations or the independent status of the drivers using its platform.

“This rule does not materially change the law under which we operate, and will not impact the classification of the over one million Americans who turn to Uber to earn money flexibly. Drivers across the country have made it overwhelmingly clear…that they do not want to lose the unique independence they enjoy,” wrote CR Wooters, Uber’s Head of Federal Affairs, in the company statement.

“Uber values driver independence and emphasizes its commitment to advocating for models that provide both flexibility and benefits to drivers. This includes supporting initiatives like California’s Prop 22, which maintains drivers’ independent status while offering benefits​​.”

Thus far, however, public statements appear in stark contrast to private concern.

A coalition of business groups, including Uber, Lyft, and other associations like the American Trucking Association and the Financial Services Institute, have taken legal action against the DOL’s new independent contractor rule.

They aim to block the rule before enforcement becomes effective, arguing it could significantly impact their operations by potentially reclassifying many of their workers as employees. This coalition filed a lawsuit in the 5th U.S. Circuit Court of Appeals back in January, seeking to maintain their ability to classify workers as independent contractors​.

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Carveouts Unlikely

The new DOL rule does not introduce specific “carve-outs” based on professions or industries.

I would hit 35 articles for a single client in about three months. I make over $150,000 a year. And you think my clients are exploiting me? I don’t want to be a full-time employee. #FixAB5

— Kat Tretina (@KatTretina) December 30, 2019

Having seemingly listed to outrage related to AB5’s rollout, the new rule instead applies a multifactor “economic reality” test to determine worker classification, focusing on the totality of the circumstances without giving predetermined weight to any single factor.

This approach is aimed at ensuring consistency across various sectors, rather than providing exceptions for certain groups or industries​​.

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